This article from the New York Times confirms what I often see in my office: many people are being put into bad car loans with very high interest rates.
I define a bad car loan as having two main characteristics: 1) the value of the loan is typically much higher than the value of the car itself; and 2) the interest rate charged for the loan is substantially higher than market rates.
Given the extremely low interest rates these days, I would say that anything over 12% is too much to pay for interest on a car loan.
A person with a high interest car loan will pay many times the “real” price of the car over the life of the loan. This hurts the consumer in many ways. High monthly payments can wreck a budget. And overpaying for a car means less money for other things down the road.
Because of the high monthly payments associated with these high interest car loans, people often fall behind on payments. This leads to a repossession of the car and negative marks on credit reports. After repossession, the lender will typically sue to recover the deficiency balance on the loan. And negative marks on credit reports will make it difficult to obtain good car loans later on. It is a vicious cycle.
As I have discussed earlier, bankruptcy can help in this situation. You can surrender your car in a Chapter 7 Bankruptcy and walk away free-and-clear from the bad loan. Bankruptcy will also eliminate any judgements associated with a deficiency balance. After your bankruptcy is over, you can rebuild your credit and qualify for better car loans that will not cost as much.
Some people may want to keep their high interest car loan even after filing bankruptcy. While this is possible, it is not a very good idea. I don’t like leaving my clients with bad debts on the books even after a Chapter 7 Bankruptcy.
Please call my office if you want to find out how Chapter 7 Bankruptcy can help you get rid of high interest car loans. My phone number is (916) 333-2222.